Budget 2015: Welcome measures for some households and the self-employed, but questions remain

Page Content

Joanna Elson OBE, chief executive of the Money Advice Trust, the charity that runs National Debtline, said of today’s Budget:

“This Budget contains many measures that will be welcomed by households who have endured a prolonged squeeze on incomes in recent years. Increases in the Personal Allowance are welcome, as are reductions in the tax paid on savings – but we must remember the large number of households on low incomes with no savings who will not feel these benefits. Big questions also remain over the impact of pension freedoms on over-55s who are struggling with unmanageable debt.

“The OBR continues to forecast a huge increase in household debt, reaching more than 170 percent of household incomes by 2020. We are concerned that many households risk falling into debt problems as a result. While the OBR’s forecast has receded slightly since December, the UK’s household debt to income ratio is still set to pass its pre-crisis peak of 169 percent at some point in 2019.”

The Money Advice Trust also runs Business Debtline, the UK’s only free, dedicated advice service for the self-employed and other small business owners. Joanna Elson OBE said:

“The scrapping of Class 2 NICs will be welcomed by many of the self-employed people we help, although the long-term impact of this measure on their pension and welfare entitlements needs to be examined. Similarly, few will mourn the end of the annual tax return – but the move to real-time accounting is a reminder of the significant ‘advice gap’ in this area. The government must ensure that an annual burden facing the self-employed is not replaced by a constant struggle to keep on top of tax affairs.”

Comment on measures affecting personal and household finances

Personal Allowance increase

“The Chancellor’s announcement of further increases in the Personal Allowance for income tax will go some way towards easing the finances of some households, after the prolonged and damaging squeeze on incomes we have seen in recent years.

“After successive rises in the Personal Allowance, we believe it is now worth considering a similar approach on National Insurance contributions as a priority. This would be a more effective way of helping the low paid, and would bring more help to the hundreds of thousands of people in financial difficulty that National Debtline and other debt charities help each year.”

New Personal Savings Allowance

“Savers will welcome the scrapping of income tax on savings for most households, especially pensioners who have endured low interest rates for so long. We should of course remember that the only reason this will affect 95 percent of taxpayers is that the savings ratio in the UK is so worryingly low.

“This measure will unfortunately do little to help those, like many of the people contacting National Debtline, who have deficits in their budgets, and for whom even saving £50 a year is a far-off dream. We need to do more to help these households build a savings buffer that they can fall back on in the event of temporary financial difficulty.”

Annuity changes

“While today’s announcements on annuities come into force next year, there are still big question marks over what is going to happen with the pension reforms coming in next month – particularly when it comes to older people in debt.

“We remain concerned about what pension freedoms mean for people who are struggling with unmanageable debt. There are real risks that indebted over-55s may feel under pressure, either directly or indirectly, from creditors to withdraw some of their lump sum, where this might not always be in their long-term interest.

“We have an additional specific concern over protections for pensions in insolvency. Most pension lump sums are protected from creditors when a person enters an Debt Relief Order, Individual Voluntary Arrangement or bankruptcy – but the status of this protection has been left unclear in the light of these reforms. We need urgent clarification on this point before the reforms take effect next month”.

Comment on measures affecting small business and the self-employed

Abolition of annual tax returns

“Few will mourn the abolition of the annual tax return, and we are pleased to see modernisation in the tax system. This is a significant upheaval for the self-employed, however, at a time when there is a worrying ‘advice gap’ following the loss of Business Link. The government must ensure that the self-employed are given the advice and information they need to manage this transition to real-time accounting, and make sure that an annual burden is not replaced by a constant struggle to keep on top of their tax affairs.”

Scrapping of Class 2 NICs

“The scrapping of Class 2 NICs will provide welcome relief for the self-employed, at least in the short term. £2.75 a week might sound like a small sum on paper, but in the short term the £143-a-year saving that this represents will make a small difference to many self-employed people in financial difficulty. What this means for their level of pension and welfare entitlement in the long-term, however, needs to be examined.”

Business rate review

“The Chancellor says it is time to review the whole business rate system and we agree with him – and small businesses in particular will welcome any sign that the burden of business rates will be reduced.

“It is crucial that the business rates review announced today considers how the rates system can be used to better support small business owners who are struggling, including those in temporary difficulty. For instance, many councils run hardship relief schemes, but there is a need for greater awareness and provision of rate relief to help businesses weather rough periods of trading.”

Comment on other budget measures and OBR statistics

Nuisance calls

“We strongly welcome the £3.5 million announced in the Budget to help tackle nuisance calls. Calls from fee-charging debt management companies, lead generation companies and credit brokers cause significant detriment to people in debt, adding to the serious strain they are already under.”

Household debt to income ratio

“The OBR continues to forecast a huge increase in household debt, reaching more than 170 percent of household incomes by 2020. We are concerned that many households risk falling into debt problems as a result. While the OBR’s forecast has receded slightly since December, the UK’s household debt to income ratio is still set to pass its pre-crisis peak of 169 percent at some point in 2019.”